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HomeMy WebLinkAboutM-79-05071.114.111 0 1°0 Joseph R. Grassie City Manager FROM: James E. Gunderson Director of Finance .CITY OF ;; 47 _rR• r.:1771C::i :•r1::';1c;?l idow4 ueJEcr: Pension. Problem and Recommendations "Eris"ENcE9'Proposed Policy and Resolution It is recommended that the City Commission adopt a policy limiting the annual expenditure for pension program funding to a 5% increase in property taxes each year; however, not to exceed 4 mills. (Attached) Further, that the attached resolution be adopted directing the pension actuaries to prepare a report indicating the revisions necessary to offset the increased cost to the City in excess of the 5% limitation .in. property taxes. Scope of Problem The table below reflects the increase required to fund the City's pension program from FY-79 to FY-80. This dramatic rise has been caused in the. main by lcss favorable experience than predicted by the actuarial assumptions. The Plan actuary has defined the problem asa crisis because costs are rising while the employee population is declining. This can lead to contin- ued cost escalation unless corrected. Estimated Pension Requirement FY-80 compared with FY-79 Cost APPROPRIATIONS System Plan Total Appropriations REVENUES System Plan I.C.M.A. SUMMARY FY-79 FY-80.1. Adopted Estimated 11,345,461 12,737,046 4,648,884 8906,981. 27,563 50,000 16,021,908 21,694,027 384,093 209,500 .' 969,259 1,231,319 -0- -0- Total Revenues 1,353,352 • Increase Percent (Decrease) Change 1,391,584 12% 4,258,097 92% 22,437 81% 5,672,119 35% (174,593) 45% 262,060 27% -0- -0- 1,440,819 87,467 6% -!0407'D 4/ 7'9t- S"47 Joseph R. Grass^ July 18, 1979 Page -2- .917,7ATTAI7FMTT.R. ' Vownworol. SUMMARY CONT D. Difference (Tax Requirement) Divided Value of 1 mill' Pension Millage Rate FY-79 FY-80 Increase Percent Adopted Estimated (Decrease) Change 14,668,556 3,883,213 20,253,208 5,584,652 38% 4,020,391. 137,178 47. 3.78 5.04 1.26 33% ;1; ' ' ' . • , .." , • , • , In order to Put the above in Perspective, Table 2 has been attached. This shows the City of Miami's contributions toward the pension fund and Social Security benefits compared with forty other cities in the State of Florida. It is revealing to note that the City of Miami is second highest after Miami Beach in the percentage of payroll for pension purposes. The seventh column from the left shows the millage rate necessary to pay the pension and Social Security expenses. This column reveals the fact that the City of Miami is fifth highest after Miami Beach, Pensacola, Tampa and Orlando. (Data supplied by the Advisory Council on Intergovernmental Relations) Since that study for fiscal year 1976-77, the City of Miami has experienced a tremendous increase in cost to the pension programs and would require 5.04 mills for FY-80, or an increase of $5,584,652 in one year. In order to address this problem the following seven solutions are discussed. - Provide a new resource for funding. As you know, the City is faced with a 9 million dollar problem next year, and our property tax rate has been lowered to 9.79 mills, by legislative action. So, no new resource is available. - Increase the investment earnings assumption from the current 7% to a percentage sufficient to offset the problem. "The importance of investment income can be grasped by considering that for a fully funded plan earning 4 percent per year on its investments, interest earnings will ultimately pay for approximately fifty percent of the benefits conferred by the program. Moreover, in a fully funded plan, an increase of one percentage point (17.) in investment yield may reduce contribution requirements by fifteen to twenty percent." (William F. Marples, Actuarial Aspects of Pension Security, Homewood, Ill., Richard D. Irwin, Inc., 1965.) - Reduce benefits. Consideration could be given to reducing active employees benefits. Integration of Plan Benefits with Social Security Benefits. One of the reasons for the high post -retirement income to pre -retirement income is the fact that there has been inadequate integration of locally- Joseph R. Grae July 18, 1979 Page -3- provided benefits with those provided by the Social Security system. Integration methods are admittedly fraught with problems, however, since successful integration can mean reduced city contributions to the plan, the issue merits attention. In 1976 the State of New York enacted such an offset plan. Its basic provisions are simple. An employee retiring at age sixty-five after thirty years of,service will receive a total benefit of approximately seventy-five percent of his or her final average salary inclusive of Social Security benefits. - Another aspect is the disabilityof provision.the provisions, the definition considering integration wthieth Workmen's provisionCompenissation and Social Security. Security Workmen s Compensation°benefits d generosity, benefit packagewhic and, therefore, h therefore, the cost ht .. T ne eshouldri t a areconsidered, u neglec- ted in which Social sic;:eurriirise.ligcleWK!iton disability and the contribution from employers. However,. liabilityimpfeotrtereeittti br ea dtrequires9.il periodic review practices of the pension boar ted factors. - Shift pension programs to state auspices.the The state requires employees wouldstill be funded by the City.Inasmuch as xitnately 9% active employees there would be no reduction to the City. - paymentover h Defer payment of the $5.6 million ingar liornemaCint.ycoynetribsfthe?oti:nfor FY-80 by spreading theunfunded liabilitY• Such a program i could impair the City's Bond Ratina . Recommendations .. nip,,nro:droampst funding The City CO111111133 ^ the attached policy limiting anliti• expendi- ture for pension to a 5% increase! eidn_ p.roperty taxes each year; however, not .d 4 mills. (1'ttacl directing Adopt the . attached resolution - report indicatin,g the revisions..necessary to offset ain f the 54 g the pension.. actuaries to prepare d ost limitation . t the increase in property tax a 54 increase in property tax revertues would be $4,851,225. J:hb Attachmentsetshort fall to the pension TABLE 2-1 RETIREMENTPROGRAN EXPENSES FOR fLCn;DA CiTIES FISCAL YEAR 1976 - 1977 Nillage Needed To Support City Contributions Pension To Social Security and Social Social Pension and Pension Plans Security Operating Population -;Security Plan Payroll($) as a t of Payroll Fxpenses' ;tillage 69.725 532.659 625,329 10,302,291 11 2.3274 7.7653 10,912 56.899 , 34,435 989,978 9 1.1990 7.5280 32.383 195.838 213.1943,516.793 12 1.8881 6.2520 30,649 - 262.153 179.565:` 4,687,014 10 1.0722 6.4342 153,374 1,745.815 3,712,064 32,168,052 17 1.9112 5.7500 34,114 226.193 .510.273' 4,232.670 17 1.2099 5.7315 117,777 1,013.985 1.741.030 19.371.460 14 1.5529 5.7500, 21,391 211,540 287,481 3.516,342 14 1.4008 3.8608 41,248 140,322 167.424 na na-: .3992 2.8800 54.708 467,575 643.503 8,823,663 12 1.0579 4.6338 29.241'- 235,419'. 181.738 4,146.885 10 .9947 5.5746, Bay'HarborIsland 4,646 47,913 20,341 826.408 8; .6921. 5.2500 Coral. Gables 43,115 486.119 1,046,343• 10.893,863 14 1.6721 8.6970 Hia1eah: 124,563 776.856 2,319,032 16,507,854. 19 2.2514 5.9120 Miami 344,189. 2.020.779 11.091,729' 61,286,194 21 3.4775 10.0000 City Gainesville Rockledge Titusville Deerfield Beach Ft. Lauderdale Hallandale Hollywood Oakland Park Plantation Pompano Beach Sunrise" CONTINUED ON NEXTPAGE Page 1 of 3 • • City Population Delray Beach 29.456 Lantana 8.150 West Palm Beach Clearwater Largo. Pinellas. Park St. Petersburg Lakeland 61,566 76,822 54,906 29,966 237,430 46,779 Lake Wales 8,948 Ft. Pierce 32,422 Sarasota 47.416 ARIL 2-2 -CONTINUED Millage Needed To Support City Contributions Pension To Social Security and Social Social Pension and Pension Plans Security Operating Sccurit. Plan Payroll(S) as a 1 ni Payroll F.x�n eses• Village 256,674 572,095 4,739,309 17 2.1245 7.9696 42.022 26,000 862,466 8 .9436 4.4400 467,536 1.437.868 10.975,767 17 2.5981 10.3620, 235,494 1.669.879 14,389,599 15 1.8407 4.8440 258,259 52.170 4.473.198 7 .7177 1.5090 154,992 175.000 2.802.661 12 1.6410 5.4100 1,468.694 3,190.412 33,565,030 14 2.5009 5.6800. -0- 732.587 12,801,143 6 1.8995 5.0620 66.857 5.657 1,048,095 1.2881 8.4320. 276.797 431,795 4,878,803' 15 1.8373 4.2500 319.586. 1,292,842 9,112.036 18 2.2887 S.9330 na • indicates that data was not available. • This column indicates how much property tax millage would be necessary to fund the city's retirement costs if the city were to rely solely on its ad valorem tax to fund this expense. It is acknowledged that other revenue sources may be used. SOURCES: Florida Department of Revenue.Florida Ad Valorem Valuations and Tax, Data, 1977.; State of Florida, Office of the Comptroller, unpublished data. Page 2 of 3 O" 1 11 TABLE 2-3 CONTINUEU- Millage Needed To Support. City Contributions Pension To Social Security and Social Social Pension and Pension Plans Security Operating City Population Secur fl Plan Payroll($) as a 1 of PazE211 Expenses• Millage Miami Beach 89,088 113,1967.488.678 20,768,967 _ 37 4.8794 9.2600 North Miami 43,371 301,51.3, 752.892 5.562.087 19 1.9841 5.2620 North -Miami -,Beach 35.9117 -0- 1,126,555 6,477.806 17 2.5071 8.6000 Jacksonville 5I3.542- 1.020.981 '13.639.162"..81,319.991 ,; 18 na, na .Jacksonville Beach 14,693 150.499 170,789 2.619,993 13 1.7278 3.8088. Pensacola 68,236 ' 439,240.1,415,697 13.028.882 14 4.3417 3.9800 Plant City 16,022 125,411 187,632 2,095,300 15 2.6220 7.9600 Tampa 273.162 -0 9,241,771 56.022,587 16 3.6433 9.8000 Clermont 5,136 23,41614,413 413,201 9 .8067 S.0000 Ft. Myers 34,706 347,071`. 206.459 6.002,040` 9 1.6778 7.7000 Tallahassee 86.358 99,683; 2.370.357 19,098.532 23 3.2168 3.5000 Oca,a -- 32,615 : .347.187:_.' 318,144 6,196.990_: 11 1.8515 4.4800 Orlanuo 122,090 . 1,403.4114 3.816.933 26,057.,655 20 3.7542 8.9850 Boca Raton" 46.624 370,875 771.225 7.529,180, 15 1.0869 6.1070 Boynton Beach 33.036 254.889 128.800 4,499,91E 9 1.2389 6.7970 Page 3 of 3 0- I . CITY OF MIAMI .COMMISSION POLICY SUBJECT: `? A policy providing a framework for commission decisions affecting the City. of Miami's Pension System and Pension Plan. PURPOSE: In view of the many requests for modifications to the City of Miami's Pension programs .by their respective boards, and the need to provide some guidelines or general policy for making changes• in those programs, it is desirable that a policy be established. POLICY: It should be the policy of the City of Miami to provide an equitable pension program for all its employees, a program which does not impair the City's primary responsibility to provide needed municipal services to its citizens. In order to attain these goals, the following objectives are adopted as a firm commission policy,,a-framework for continuing review of Miami's pension programs: 1. To establish and maintain essential parity between the Pension Plan for nor.. -uniformed city employees and the Pension System for uniformed personnel. To evaluate, on a continuing basis, the components of both the Plan and the System for the purposes of making the benefits equitable for all employee members in each program. To limit, until this policy is revised, or the 10 mill cap on municipal taxing ability is removed, the annual expenditure on pension program funding to a 5% increase in property tax revenues each fiscal year; however, not to exceed 4 mills. If the state legislature reduces the millage below 10 mills, then the 4 mills will be reduced to the arithmetic equivalent. This policy to become effective for the 1979-80 fiscal year.